Would You Take a Loan From Your Parents?

Hypothetically, let’s say there’s this guy you know who just dropped $14,000 to get rid of his house so he can be mortgage-free, but due to this his cash reserves took a major hit and his wife is now worried there’s not enough padding for emergencies.

And then let’s also suppose that this person’s parents called up and said – “Hey, wanna borrow $14,000 and just pay us back each month with the savings you’ll now have from getting rid of the house? Which should take you about 15 months if you throw the entire $900 at it each month?”

To which you think to yourself, “Huh… an interest-free loan that pays itself off each month? And I get a happy, comfortable, wife too? Nice! What am I missing?”

But before you could answer this, you get smacked in the face with a sign that reads, “WHY DO YOU WANT TO GO BACK INTO DEBT AGAIN DUMMY??? WHAT TYPE OF BLOGGER HYPOTHETICAL PERSON ARE YOU??”

Of which of course stops you in your tracks. But only for a few minutes…

Because then you remember you’re also about to fully fund your retirement contributions for the 2015 year which will cost you another $25,000’ish, leaving your once $40k+ strong stockpile whittled down to $2,000-$3,000. Which is fine if nothing goes wrong (it’ll be replenished each month going forward), but certainly teeters on the brink of riskiness as a self-employed father of two supporting his whole family.

Which leads us to today’s question:

What would you tell this person if it were you?Would you take the money and hug your mother profusely, feeling thankful to even have such an option? Would it never even come up because you don’t mix family with loaning? Do you tell everyone they’re all nutso and to stop polluting your mind when you’re finally debt-free after 10+ years?!

I know if it were me, and of course it is certainly not me, I’d have a hard time coming up with the answer. A part of me would love the idea of an extra $14,000 cushion knowing full-well you can repay the loan off at any given point of time, (and that it would also please your mother to no end as she loves being able to help out her grown sons!), but on the other hand I’d feel like a total un-grown son and maybe even a hypocrite. Since, you know, I’m supposed to have my $hit together and plan better as a professional financial blogger. Can you imagine writing a blog post about how you needed your mommy to bail you out of a cash flow problem like that? At age 36?

I don’t know what I’d do in this guy’s case, but hopefully you can share your own thoughts in the off chance I’m ever presented with such a unique (and very specific) situation :)

Have you ever taken out a loan from your parents before? Would you take this one? Decline it and hope you don’t need to tap any emergency savings for awhile?Not max out your retirement account and avoid all those tax savings/future wealth growth?

A tricky pickle he’s in, indeed… Good thing he has awesome friends like us to help him out!

Oh gosh, such an interesting question. Well, I certainly won’t think you’re a hypocrite. And it seems like your family’s financial security in the short term (until you can get your savings up again) is the most important thing, and this seems like a pretty convenient option to make that happen. I think there can be downsides in some cases to borrowing money from a family member, but it sounds like you have a really positive relationship with your parents, so those issues might not come into play. I would still probably suggest sitting down with them and typing up a plan for repayment though.

Not maxing out your retirement savings also seems like a totally legit option, or you could contribute to them but leave X amount in savings, X being the minimum amount of emergency fund money that would make you feel secure.

I agree with Sarah, as you have a pretty big stash already 500K, so missing the max contribution by 14K is not that bad given you have so much already at a young age. Also if you take the loan, you are helping your parents with their taxes, as they are “gifting you the money” sort of. LOL. Good luck.

Hey J – sorry it’s been a while (the baby isn’t due for 2 more months and I’m already stretched for time). We had the option to take a loan from my in-laws when we bought our home. It would have been pretty much whatever we needed (within reason) and at no interest, and possibly for however long we wanted. Sounds like a pretty sweet deal right? I declined. A) we had the money we needed, B) we wanted to buy our house on our own, and C) something about owing money to parents is bad enough, but in-laws is even worse. There’s always something looming over your head. I’d tell this “hypothetical person” to avoid taking a loan from his/her parents. There are a few really sensitive topics that even families can’t always discuss – politics, religion, and MONEY. I’d steer clear buddy. Hope all is well with you.

This is a true conundrum. I would tell your friend ;) to not take the loan unless there is an emergency. That will make him work harder and faster to get his own stockpile back up to snuff without immediately going back into debt. I’d also comsider that retirement contributions can be deposited over the course of the year and only adjusted downward in the event of a true emergency. A few thousand bucks typically covers most emergencies. Personally, I’m sure it would be very tempting to take a “loan” from your parents. Your friend is a very lucky person to even be in that situation. But a loan is still a loan and it equates to owing someone money every month. Don’t do it. Just my 2 cents. :)

This is pretty much what I was thinking too. Your ‘friend’ can put that sur of money into their savings account each month, but if there is a big emergency that they need more cash than they have in savings, then they could (hopefully) get some of that loan money from their in laws. I would rather not owe someone money when it isn’t necessarily needed. :)

I took a 5kEuro loan from my sister when we remodelled our new-bought house. The remodelling was necessary and otherwise I’d have to ask the bank for an additonal credit. I insisted on paying her back +3% after a year.

Since my mother died 2 years ago, we have the money to pay back our loan from the bank, but the bank doesn’t let us out of the contract, because interest rates are very low now.

If I had lent the money from my parents they would have let me out of the contract.

So I’d prefer a personal loan rather than a loan from the bank. But: It’s emergency money, why don’t ask the parents when a real emergency happens for the credit?

Thanks for chiming in Anita! Sorry to hear about your mother :( Good point indeed about asking for help if/when an emergency arises. I guess we’re just so used to having/wanting a stockpile to make us sleep better at night.. And I require much less than my wife, which is partly my conundrum.

I was going to say the same as Anita – you’re parents have said the money is available, I doubt they will later say, oh nevermind. Think of it as money available upon emergency. I’m sure the self-sufficient part of you would rather not take your parent’s money, if you’re like me, even if it is a loan. It would probably be better to ask for a specific amount if problems/emergencies do arise.

My old-self before getting my financial act together would jump at the chance to borrow the money, because I would not have my own stockpile of saving. Because of my bad behavior with money would probably failed to pay it back on time. So given that I’m not sure my parents or in-laws would offer up that amount of cash to me. My today self (more responsible) would decline. Sure I don’t like the fact that I would be draining my e-fund, but each month I could add to it and build it back up. If and event popped up that the $2-3K wasn’t enough to cover I’d than ask mom and dad to cover me.

Is the $14k sitting somewhere liquid enough that your mom can access it easily if you need it? I don’t think it makes much of a difference if it sits in your account or hers, but the idea that there’s money you can access for emergencies is important. I see the situation as follows:

Pros of her keeping the money: psychologically, you’re not in debt until you need it; depending on your family relationships, not having a loan can mean not having a guilt/bargaining chip for family obligations.

Pros of you having the money in your account: what if you don’t need $14k, but you need $1k a couple of times? would it be nicer to have discretion as to when and how much you use it? It sounds like your mom would be happy to ease some of your worries, knowing that you are super responsible and there’s an absolutely certain repayment plan.

If you really think you’ll only use the money for major emergencies, I think it would be fine to keep the money either place, assuming it’s liquid and available. Having $2-3k in liquid savings while supporting a family would make me nervous too. But, hey, at least you won’t have unexpected home repairs come up to eat that cash!

Disclaimer: I’ve taken loans from my parents before (for school and paying off some high interest rate student loans), and I had mixed feelings about it. In the end, it worked out fine and saved me huge anxiety about high interest rates, which I traded for the smaller anxiety of owing them money (now repaid). :)

That’s an interesting way of looking at it… does it matter where the cash is sleeping at night? I don’t think so? In either case it’s just sitting in a savings account so anyone can access it anytime if need be. But emotionally it feels much better having it in your own account I reckon, even though it’s not as logical.

I have taken a loan from my parents in the past for misc items but I never liked doing it. Once I got out of school, that was actually the first loan I paid off (even though it was 0%) even though I did have a little bit of credit card debt. I just hate owing money to people I know so I normally try to get rid of it as soon as I can.

In this situation, I don’t know if I would take the entire $14k. Instead I would figure out what the minimum amount I would need in reserves to feel secure. If that amount was $10k, I would only borrow to get to that point and then would try to pay it off as quickly as possible. I normally sit on the conservative side so I would want to have the money in the bank and easily accessible in case something happened, especially if it was for my family.

The last time I asked my wife what made her comfortable the number was $50,000 haha… Over the years it’s dropped since having kids (because we had less $$$, not because her comfortability dropped – that pushed it higher!), but an excellent idea to bring up for sure. Kind of a happy medium?

My parents offered us $100,000 two weeks ago to pay off all our student loan debt, at 0% interest. It was an EXTREMELY tough decision, because we are about to move to a higher-cost area (while incurring a loss in income). But I decided that the risk to our relationship wasn’t worth the possible financial gain. Strong family ties have a huge value, and anything that could possibly affect that isn’t worth the money. I couldn’t imagine sitting at their table for holidays without it hanging over my head. I did tell them that we would call them up if we were ever truly in desperate circumstances, and they were happy to be a back-up for us. In the meantime, I want to figure a way out of the student loan debt on my own.

Sounds like a tricky situation for sure. In this case I think that our plan of attack would be to politely decline the offer but ask if they can possibly hold it in reserve for us incase something does happen while we are rebuilding. While it will seem very risky to be left with only $3k in your emergency fund (because it is) I’ve found that emergencies rarely come up. So it might not feel comfortable until it gets rebuilt, chances are that it won’t actually be needed before it gets rebuilt. Honestly, when was the last time that you have an unavoidable expense fly in for more than $3K. And, with less security in your emergency fund the more motivation you have to cut out unnecessary expenses so your savings rate should naturally trend upward. So by being diligent and adding at least $1K per month to that it will grow fast. Long story short, you’ll be fine, just stick to the budget and be careful.

It’s true – I do get more scrappy when I’m forced to… And quite honestly I don’t even know what an emergency is these days? *knock on wood* We’ve had to fix things in our old home before really fast (which is long gone now — see ya, sucker!) but even then it was a few hundred at a time… And with credit cards now odds are I’d slap whatever it was on there and then have an extra 30 days to pay it off without incurring fees (and even if you went over, it wouldn’t be the worst in the world – as long as you pay it off in full sooner than later and don’t make it a habit).

So you’re right… odds are low, but I guess you never really know… I guess it’s more of a matter of helping my wife feel super comfortable about everything and knowing she doesn’t have to worry regardless of what happens. I’m the more risky of the two, so I gotta find a way to help sooth her fears if it’s the route we wend up going down…

I agree, you get scrappier when there is less money in the bank. I would not take the loan. I took a “loan” from my parents for college. Except it was not communicated to me it was “a loan” or when “it was due.” Finally I paid it off because I could not handle the stress. It left our emergency fund pretty low, but I worked to build it back up.

J Money, I was in almost the same situation a couple of years ago, except I borrowed money from my parents to put a down payment on my house. They also offered me the money interest free and told me to pay them back when I could. They were great about it, never brought it up or tried to make me pay up quicker. BUT I was freaking out, it’s just an awkward situation to owe your family money, anytime I saw them I was always thinking I gotta pay that money back. It took me 6 months to pay them back, but I just felt awkward not because of anything they did just because I don’t like owing money especially to family. I would say ride out the wave paying yourself your house payment without going into debt to your parents, unless you don’t believe that you will have that awkward feeling.

Well, I do know that it’s never been awkward in the past when I’ve borrowed from them, so at least that’s good. They literally never brought it up once and didn’t affect our relationship in the least. Then again it probably helps that I paid on time and didn’t give them a reason too – hah.

Personally, I would consider not contributing the max to the retirement accounts, holding out only the amount required to give your wife peace of mind. Since you seem unwilling to consider that, I’d wait until an emergency arose before taking anything from my parents. I would either not have done the house deal or would adjust my retirement contribution for one year if those two in combination took my savings down to uncomfortable levels. And your wife’s feelings are important. I’m just not sure borrowing from parents is the best solution.

I would take the money, go to mexico, and never come back…j/k (sorta…but not really).

Actually I would decline the loan. The idea of owing my parents just for comfort would make me …well…uncomfortable. I would, however, thank them and let them know that if something does happen you may need it in an emergency. This way you still have the peace of mind, but you don’t owe anything. I know my mom would help us out if we burned the house down after forgetting to renew our insurance because we were arrested for smuggling sloths into the country, but I wouldn’t want to take her money in the off chance we don’t get caught (wink…there are no sloths in my house…wink).

I’ve done this, but I borrowed from my parents in order to take on MORE debt! :( I was avoiding PMI when putting a down payment on our first house. My dad REALLY wanted me to buy a house rather than renting when I got married. Being the good son I am…or was, I took the money! I paid him back aggressively because I hated the feeling of owing, but it meant giving much less to retirement and having a mortgage!!! Regrettably, I made this decision, but I was borrowing for a different reason. Honestly, the decision that works best for the family is probably the right decision.

I like the answer Thias gave. Also, what about the possibility of just saying to your parents that you think you’d rather try to do it on your own but if an emergency comes up in the mean time can you come back to them? Then in the mean time, save like crazy so you don’t have to.

This hypothetical person is worried about going into debt over a hypothetical situation. If the money is freely available with zero interest, why not use it solely if there is an actual emergency?

The hypothetical person can then shuttle $900/month of their own money into their own emergency fund, and in the event something crops up, they can then tap into that free money their hypothetical parents are offering? With each passing month, it’ll become less and less likely that said hypothetical person will hypothetically need to borrow money from their hypothetical parents. :)

I’d go with the route that it would be nice to know the $14k is there if needed, but not go down that path unless something came up that you needed more than you had in emergency funds. Plus, it could be like an “emergency fund version” of the challenge everything exercise.

We borrowed some $$ from the wifes parents to help with a home down payment but it was repayed almost immediately. It was essentially a bridge loan due to finances and stuff getting shuffled around. I can see both sides, and a happy wife counts for a LOT, so like some suggested, maybe find a middle ground below $14k but above having $2-$3k around?

49 years old, and still willing to borrow from Bank of Parents if necessary (did recently to buy a house in the US – moving from Canada as soon as immigration visa comes through – and am technically mortgage free). Your personal funds aren’t going into the red, your emergency fund is just getting really low. Can you use the Mom loan offer as a ‘pre-approval’, kind of like a line of credit, and borrow against it only if the unforeseen occurs within the next 12 months while you are building your own reserve back up ?

I did borrow about $4,000 from the bank of M&D about four years ago. It was at a time when I realized instead of the number in my bank account getting bigger the balance of my LoC kept growing and as a result it was tearing my mind apart. Borrowing the money from them (interest free) did help cushion things when I needed it. Being in debt to them was hard on my mind and was definitely one of the motivating factors to seek out blogs such as yours at the time.

If they offered the money again today I believe I’d decline since I don’t want to get caught in that cycle. By the numbers I know it would be to my benefit but we humans have our foolish pride. :) I would make it known if the need did arise I’d turn to them first before the bank.

I would jump on it immediately and count my blessings every day that I am surrounded by good people who love me and are in a position to offer the temporary assistance. That’s what family is all about! I would also accelerate the pay back to the best of my ability. What a supportive, generous and kind hypothetical family that lucky guy has!

Having done this myself to help get myself out of debt and pay them lower interest (instead of the banks) I do no fault one for doing this. I’m probably in agreement with Steeb on this though – maybe use it at last resort – knowing it is there if you need it. Best!

I’ve only taken a loan from my parents one time, and it was a very short term situation. I had a car that I wanted to sell but still had an outstanding loan that I was carrying. An out of state buyer was interested, and I felt that it would remove some potential complexities if I paid it off in full beforehand, so my parents fronted me the money, and I paid them back immediately after the sale was finalized.

I actually have this kind of arrangement with my parents. I borrowed $12,000 from them during my last two years of graduate school to pay for housing in NYC; they offered to just give it to me but I said no. Since they had had a similar arrangement with my dad’s parents (borrowed to buy a house, paid back when they could) I think we were all comfortable with the idea. We “compromised” on a loan with no interest and no time frame for payback; if necessary, I’d settle it with the estate, so that my brother doesn’t lose out. The general idea was that I forget about it for a while, get myself in a more stable situation, and then start paying them back. Because it’s not active I don’t list it on my financial statements, but I want to start paying it back as soon as I either (a) make a down payment on a house or (b) decide I’m not going to buy a house.

So no, I don’t think there’s anything inherently wrong with this kind of loan, especially if you know that it won’t be a big deal within your family relationships. That said, if you don’t even want to go there, I don’t see why you can’t say to your mom “hey, thank you so much for the offer, but would you be ok with just leaving it open for now, and if we need it, we can ask?” That way you hopefully just rebuild your own reserves, but the loan is there if it really is necessary.

We borrowed money from my in-laws to help build our house and we are repaying them the interest. Borrowing money for the house let us escape paying rent (we don’t plan to ever move again) and we are doing as much work on the house to keep the total cost as low as possible. My wife & I personally wouldn’t borrow just to max out our retirement accounts or to purchase a second vehicle for example. Of course, I don’t know if either of our parents would be that generous.

I would agree with what many people said and only take the loan if an emergency comes up. I know from experience it can be stressful to have such a small emergency fund, but if you now have the cash flow to add $900/month to it (most likely you will add more based on reading your blog) I don’t see a reason to take the loan now. Why pay your parents $900/mo. when you could just pay yourselves?

I’d echo a lot of people above: ask mom if you can draw on this set aside $14k only if a true emergency arises. I’d think this would spur you to a) be extra prudent to avoid a costly mistake b) be extra motivated to push your reserves back up to avoid a loan from her.

I’ve found when I’m truly motivated and trying to save quickly I avoid doing dumb stuff. You know, like speeding on the highway. Worst case that’s like $350, which you could cover easily, but it’s $350 less than you would have contributed to replenish that efund. I’m not saying if mom gives you the $14k right away you’d be reckless and go 90mph down your residential street, but being skint always makes me question everything more, pause a second longer and look a litter closer.

While I think having that buffer in your savings would give you some peace of mind, I wonder if it’s just easier on everybody if your mom keeps the money. If an emergency comes up, you still have access to it. If things go well, you don’t have to worry about paying her back month by month.

Hi J, I was given the option of borrowing money from my father to pay off my student loan debt years ago. I declined because I didn’t want to be/feel (these darn emotions) indebted to my father. He probably wouldn’t have held it over my head but he would have had EVERY right to if something did ever go wrong (like not being able to pay him back etc). Now, about 5- 7 years later I sometimes think I should’ve taken the offer since I wouldn’t technically be in debt with the feds and good ‘ol Sallie Mae anymore aaaaaand I would have probably been able to pay off the loan with my dad by now since it was interest free. But now I’ll never know. Good news is I expect to be debt free in about 4 years! (Still longer than I had hoped to be in debt but shorter than the “life” of the loan. Ya live and you learn.

You’re braver than I! I would have taken that loan but who knows what could have happened throughout that time frame emotionally/family wise. So I give you mad credit for doing it your own way and being so close to being done!! Congrats!! Imagine how your life is going to be w/out those dang things?? Keep pushing!

I would not take the loan. I’d just take the retirement hit. Do you have a Roth you could tap into if necessary? I’d do everything possible to not take the loan.

I’d hate the guilt. Imagine that every time you went out to eat, you’d be thinking about the fact that you could have used that money to pay back the parents.

My parents paid for my college (4 out of 5 years, I gave them all of my money from 1.5 years of co-ops). They also gave a good chunk to us for our wedding. We even lived with them for a month and a half between moves. We didn’t take money from them though! :)

I think it is awesome that your friend’s very supportive parents made that kind of offer! :) My two cents, borrowing money from family depends on the relationship. It sounds like your friend has a really good relationship with his parents! I have borrowed money from my Dad when I needed it. He has always been amazing at not holding it over my head or using it against me later. I know some people who have had these types of problems after this type of situation. My suggestion would be it depends on if you feel you “need” it. If it makes you feel better knowing it is there and you know you can pay it back and only touch it if needed then I don’t see the problem. If you feel confident being able to replace the money on your own and don’t feel you “need” it then I would skip the loan. I always go by my gut reaction to which will let me sleep better at night? Good luck to your “friend” and big hug to your friend’s parents for being so great! :)

Hi — I’m a newer reader and this is my first comment. So feel free to disregard. :)

I would vote to NOT borrow unless you need the money for an emergency. I think it just addresses a mental mindset that really doesn’t change anything (other than putting you in debt). If for some unexpected reason you needed $5K (and those odds are diminished a bit since your ‘friend’ sold his house, right?)….would you use $5k of the borrowed $14k and then ask your parents for another $5k to re-replenish that savings fund to the mental peace amount? Probably not. Seems like it would just makes sense to borrow the money if/when you really need it.

One question I hadn’t seen raised. Do you have any siblings? Does taking a loan like this complicate the “what Mom & Dad did for each of us” kind of thing?

I do have siblings but money has never gotten in the way for any of us over the years. we’ve all borrowed or been given money at some point as needed and no one gives it a second thought (thank goodness!). Very very blessed indeed to have a crazy good family like that.

Money….”slippery slope here”….Suppose this “friend” took the $14K from the parents to be paid back $900 a month….Then suppose a “great opportunity” for say a Cruise or Vacation on the “cheap” and your friend seized the opportunity. Pretty sure the parents of the friend would not be fans and worse case scenario it could effect the relationship. If your friend would like to accept this kind offer, draw up a “promissory note with a confessed judgment clause”, and have all parties sign it. To be fair the friend should agree to pay the parents…say 3% interest and an amortization schedule should be part of the agreement. This way it’s not charity, the parents have actually “made an INVESTMENT” in the friend/their child and have derived some income in the process. AND the friend can claim the interest expense on income tax…Just my 2 cents,,,,

I would thank my mother profusely with my wife by my side, (group hug) and tell her that we are ok now, but that I really appreciate her offer and that should a disaster descend upon my house I would feel comfortable asking for help since she offered. I would then start socking away 900.00 a month to build my own disaster fund for it is always better for your soul that you save your own earnings, but to be pragmatic and know that la merde ($hit in french) happens and have the warm feeling that your family would help.

I haven’t taken a loan from my parents (although I took other help when I was in my 20s, like living with my mom and my dad cosigning a car loan.) My mom did, though, after my parents divorced because she lacked credit. My grandfather bought her house outright and let my mom pay him back, interest free. So I did benefit from the arrangement (though i was a child and didn’t know it at the time).
I don’t know. To me it depends on the relationship with the parents, their financial status (can they really afford it or is it a stretch?), and what would I expect to do if all of a sudden my parents needed the money back sooner for some reason. It would also depend on what the plan was if I didn’t get the loan and the crap hit the fan….because either way I would need a good plan B.

If not borrowing the money means not investing in your retirement account this year, then I would definitely borrow the money. It sounds like you and your parents have a good enough relationship that you’re not concerned that this will be used as a weapon against you later, so if it’s just the matter of pride and not wanting to be in debt again (and believe me, I totally get both of those sentiments), I think it’s better to take the loan and make the retirement account contributions. It will be paid off quickly, and if you take emotion out of it, it’s the result that makes the most financial sense, right? I know there’s no way to completely divorce emotion from money, but we owe it to ourselves to at least think about it from a non-emotional perspective and then decide if we can live with it.

I would have no problems taking the loan if there was a true emergency and I needed it. I would not, however, take the loan just to bulk up my emergency fund. I’m sure the loan offer would be on the table if something came up and your friend actually did need the money at some point in time. :)

No loan from mom and pop….unless we were in some dire situation. Along our journey, we have not made the best monetary decisions at times, but we have rallied and figured it out together, without parental help. It has made us better with our finances and made us a stronger team. Plus, we don’t want to dip into our parents retirement funds….unless you’re part of the Walton family…at $149B…then you don’t have to worry about their retirement.

I don’t think I’d take a loan from my parents unless there was absolutely no other alternative (like I did when I was in college). Given the fact that I have a few million dollars more than they do, it’s more likely they would borrow from me.

As a parent, I don’t think I’d loan $14k to my kids either. Too many problems could crop up. I’d either given them the $14k or not bring it up.

The question here is really about having your security blanket for sleeping at night. Sounds like your friends wife wants to have the blanket on your bed while your friend would be more OK knowing that there was an extra blanket on the parents bed that you could use if the need came up. I’m personally more inclined to leave the blanket on the parents bed but the better question is which scenario will let your friend and his wife sleep soundly at night? That is a question they will have to talk to each other about to find where they both feel the most comfortable.

I would not take the loan. I would let Mom know that I appreciate the offer but would prefer to be able to go to her if and when an emergency comes up over the next 15 months while I re-up the money by stashing the 900.00 per month. Your wife will have peace of mind knowing you can reach out and get the emergency funds if necessary, Mom will be pleased to know she can still help you if you need it and as a bonus you keep getting your hustle on each month and you remain debt free. Boom…drops the mic ! :

J-Money,
Being that you are financially sound and responsible, then I would say yes take the loan. My mother bailed me out a few times when emergencies occurred above what I could afford. It took me longer to repay her than anticipated, but no collecting calls, interest, or other annoyances. Family can be flexible if, murphy’s law, another emergency occurs. And the wife will feel more secure with what you have to deal with murphy’s law.

I wouldn’t take the loan since there isn’t a desperate need. Your friend should just turn on the Rocky music and get some juicy sponsors for the new podcast!

It’d be a nice feeling that I have an emergency line of credit, though – I think that’s how you / your friend should view the parental offer.

Also, please note that the IRS doesn’t like the concept of an “interest free” loan between family members. They view the interest that could have been charged as a gift.

For a $14K 15 month loan, they probably wouldn’t care, because hypothetical market interest payments would be (relatively speaking) chumpchange and fall well below the annual gift tax exclusion amount ($14K for last year and this). But once you get to loftier levels (like Elizabeth’s $100K offer above) you need to document everything in writing and make sure the IRS is kept happy – either through charging interest or formally recognizing the market interest rate / implied payments were indeed a gift.

And documenting everything in writing is a good idea anyway, even (especially?) among close family members :-)

I took a loan from my brother for a 20% down payment on my house (with me adding an additional 10%). We have a ‘second mortgage’ contract, signed and notarized, and I pay him interest (flat 5.25%/year, not compounding). Our agreement is that I can take as long as I need to pay him off, and I can pay as little or as much as I want, with the knowledge that interest will keep adding on each year. It isn’t ideal, but it helped me out at the time. I dump half of my tax return and half of any bonuses I get into a separate bank account, and pay him whatever that amounts to at the end of the year. I’ll have him paid off by the end of next year, then I’ll start putting more money towards my monthly mortgage payment.. I wouldn’t be opposed to a loan from family or a friend, but I think it definitely requires a legally binding contract of some sort. That way, there are rules set out for each side, and it can’t turn into a he said/she said situation. Doesn’t sound like this would happen with your parents, but it might provide some peace of mind on both sides.

One option I seen variations of above would be to figure out how long you think it would take to rebuild up that $14k amount. Write up a HELOC arrangement with your parents, where for a certain amount of time (the time it would take toy rebuild the $14k), you have the option to pull up to $14K from them if it is ever needed for an emergency. Set out the terms of repayment, should you ever pull on it; any interest (even if it’s only nominal, it gives you incentive to pay it off sooner); length of time for repayment, etc. This way, you’ve got access to the money, but also aren’t stuck with having to pay off another ‘debt’. Plus, what if there aren’t any emergencies in that time? Then you’ve had this extra payment to make each month that could have been going elsewhere.

Hmmm…..well, I have accepted small loans from a parent twice, and have no shame about it :). Both times it really helped me out–yeah, I could have gotten by without but it sure made things easier–and, it may sound weird, but I think they liked feeling that they could still help me. I’m super independent and prefer doing things on my own, and sometimes I think parents like feeling that they can still help their independent, self-sufficient kids.

That said, both times paying those small loans off was THE most important priority to me, and both times I paid them back in less than a year. I would have taken a ding on my credit report, paid late fees, and lived on ramen noodles before I would have stiffed my parents.

I don’t know about you J$, from what I have read you have a great relationship with your parents, but when I bought my house I borrowed £4000 from my Dad to pay the deposit. I paid him back of course, but the feeling was awful, I worried about it constantly, It would get brought up at times (I HATED that the most) and the whole experience was sour for me. I vowed never to be in debt to anyone for anything ever again, and 4 years later thats still good :)

That’s an interesting question about what future parent would want. But the reality is that once every one in the picture is adult and self-sufficient, you shouldn’t be making financial decisions based on how someone else feels…. I don’t think.

My husband’s mother helped her children out WAY more than my parents helped my siblings and me. In some cases it was based on need (like filling the heating oil for the winter when a bro-in-law was unemployed) and sometimes to be nice. Sometimes she would send us money to ease her conscience because of all the help she gave her other children. The whole thing was very bizarre to me (coming from a family that never did that…my Mom would send gas money to a sibling who was poor and had to travel the farthest to meet up with the rest of us — that kind of “help”).

Of course, I admit my own skepticism based on how I saw these people who needed help behave later in life (including how they “managed” an aging man’s money).

If accepting the offer would somehow impact how the parents felt at all then it’s a bad idea to take it. I’m presuming they are literally just trying to be nice and their feelings are not a component of the decision making.

I would loan my kids money all day long if it truly helped them and they were being smart with it/paying back on time/yada yada yada. I’m sure they’re going to be just fine without me, but I love watching out for them and helping as I can! Feels so good – and they’re not even 2 and 4 yet! :)

I borrowed $10000 from my in-laws once when we were buying a bigger van and selling our old one (in that order) to cover the gap. We paid it off ASAP.

But your friend’s situation is very different. I’m going to use “you” in my comment because it reads better. We all know I’m really talking to your friend, okay?

So, you only want it to cover your emergency fund. So ask Mom to set it aside in a separate account still in her name (or even in a joint account, just you and her) so that it remains available, and then use that extra $900 now in your budget to pay your emergency fund instead. She can take back $900 a month from that account too. Then in case of an actual emergency in the meantime, you can always fall back on the Mom cash. Best of both worlds.

The last time I took any kind of financial help from a parent, it ended up coming with way more strings than I ever imagined it could. It was an awful experience- so much so, that it nearly destroyed our relationship altogether. So I would certianly never do it again, under any circumstances. But I think a lot depends on the relationship, and the personalities involved. Because when you borrow money from a family member, and things don’t go right, any underlying problems between the parties involved will be brought to the surface in a spectacular fashion. If this person does take the money, I would set out the expectations on the part of both the lender and the borrower ON PAPER, so there is no confusion, and no room for interpretation.

Since I have taken a loan from my parents in a time of need, I can say that if you absolutely have to then I’d rather take it from someone who cares about me, that if I miss a $200 payment it won’t kill me or them. I don’t think I would take a loan to beef up my emergency fund, but if something happened I would certainly consider asking. I mean would you help your parents with a loan in a time of need if you had the money? It’s certainly a tough call, but I lean towards saying no in your situation but saying yes in a time of desperate need.

I would keep the option in my back pocket until it was necessary. I borrowed from my dad for car repairs, and I’m still paying it back, and I haven’t heard the end of it yet. There’s something about borrowing from your parents too that makes me feel like kid still. As for maxing out contributions, still aim to fo that, but i suggest cutting back a bit until your buffer is at a more comfortable level. It’s a good investment in the future, but you’ve got to make it to the future in one piece first.

It would depend on said person’s relationship with said mom. I’m super close with my mom. If she knew of whatever situation and was willing to help, and I actually needed the help, I would say thank you and accept. My mom is the type that would not let it hang over my head, and we are super close. However, taking the loan would entirely be dependent upon if I needed to have that extra cushion. If there was already a cushion in place, and I was working to refill it, I probably would not take it. If I was downright broke and needed it, you bet I’d accept that offer. It’s a tough call to make, but if, really, $hit hit the fan, would that offer still be there? I mean, don’t take it now, but if there *was* an emergency, do you think they would re-offer said person the loan? Probably not the full amount, but enough to cover the emergency. If the answer is yes, don’t take it! And if something comes up, and you are desperate, then go to the parents. Also if, you know, said person has cool parents who would do such a thing without it adding anything (or taking anything!) from the current relationship.

Take it. Provide post-dated cheques and a spsheet of the repayment schedule. Done.

Why is it OK? You can repay it at any time, on demand. That’s what makes it OK.

If that weren’t the case, you would have the issue of affecting the family in a negative way. In this special case, it’s a non-issue.

BTW: We did the same thing years ago and the ONLY two reasons we accepted the loan was because 1. we had the money to pay it off at any time 2. we preferred to give our folks the interest as opposed to a bank. Our loan amount was more, but both parties loved the arrangement. It worked out very well.

Parents are supposed to be there to help you, I have taken loans from my parents before and they insist on helping me. I rather have to pay my parents back than a bank. Plus, my parents wouldn’t charge interest on me, and even if they did it would still be a fair deal. I wouldn’t think of it as being a hypocrite or loosing pride, its just your parents helping you like you would help your child if they need some money!

Are these for 2015 retirement contributions due by tax filing time? If they are 2016 contributions just do them over the course of the year, and keep your emergency savings less the $14K. You wont feel truly FREE of that old house until you are done paying for it, so just be done with it!

We have borrowed money from my in-laws in the past. We paid them more interest than they would get at the bank and we paid less interest than if we would have gotten a loan. We are very ethical and we had (had – because one is deceased now) a good relationship. I do think it should be the exception, rather than the rule.

DON’T DO IT! Tell your “friend” to follow his initial instinct. He is FINALLY debt-free so why undo all the effort. The skinny emergency fund is a great motivator. It might even cause him to follow the other advice you give on creatively finding every dollar possible or taking on a short-term side hustle to put toward the goal.

By the way, even if your friend doesn’t mind – please tell him not to do it on behalf of his wife. Sunday dinner with the family will taste so much more different to her even if she never admits it.

It sounds like the answer to a prayer but once you cool down and think about it, it’s debt. Debt to a family member. So you don’t fully fund your retirement in time. That’s the breaks. Make it up in other ways.

I’ve borrowed from the Bank of Mom before, but not to help with padding. I wouldn’t take the loan. Instead I would thank them and ask if the offer would be open if an emergency DID arise. Then you can throw that $900 into savings where it belongs and still be secure in the knowledge that you’ll have help if something happened.

Like others, we have borrowed money from my family. They get more interest than a bank would give them. We pay less interest than we would a bank. We keep it all IRS approved with interest rates based on length of loan, etc. Then again, this is my family’s normal MO.

My grandfather would have started a family only credit union if it had been legal!

So all these people who talk about it making family relationships uncomfortable…I get it in a logical way, but not in a personal finance emotional way. I fully expect this will continue down to future generations as well. My family would be offended if we played by Dave Ramsey’s rules! Luckily my husband is okay with this.

It’s hard to say since only the hypothetical person =) and his mom know the relationship. If the parent can afford such a loan, I say why not. But I also don’t see the need for it. The money is to cover a hypothetical emergency and seems a little unnecessary. I think I would only take the loan if there was an actual need.

Even if your family is 100% sane and mature and this won’t cause problems, I’d still avoid taking a loan that you don’t need. If something pops up, it makes sense. Until then, it’s a debt for no reason, right?

Don’t do it… hypothetical friend! To go into debt to your parents when you’re a father of two and closer to 40 than 30?? No way. IF you had a $14,000 emergency, you could possibly THEN ask for the cashola, but why taint the dinner table conversation until then? Instead, is there any way to delay the maxing out, and to work crazy hard to refill? Also, it stinks to get a master’s or PhD and then to work at a job that doesn’t pay as much as you think you’re worth, but if you were low on cash reserves, I’d take that job for my sense of well-being and security. And, my HR friends tell me that it’s WAY easier to get a job when you have a job – employers always ask “why is this chick unemployed? Why should I hire her?” So even being a receptionist is better than nothing… and if it paid more than childcare, that would help those reserves.

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

Your “friend” could also sock away $900 in an interest bearing account every month and get that cushion back, no intergenerational strain needed, in that same 15 months (or slightly less, counting interest).

And should an emergency arise, it would be nice to know that the option to borrow is there.

Without reading a day full of comments because I’m lazy, I would say that the small emergency fund should be dandy. And on the big IF that something goes wrong, I would wager that the potential loaner would be willing to swing a loan on that chance. ;)

I would try to avoid a situation that would require myself to borrow money from my parents or anyone else for that matter. If I wanted to pay off my house sooner in order to save money, I would work harder or create additional income streams to bring in more income and pay it off without setting myself up for failure in other aspects of my personal finances.

Well, my parents borrow from me. And if I could borrow from them – I would in a second. That’s what family can do for each other, than do it. Heck, people sometimes even act as the lender to a person who wants to purchase their homes. As long as you write up a formal agreement, pay them back on time, and take GOOD CARE OF THEM WHEN THEY GROW OLD, you are quite fine.

As a young millenial, I can confirm that the bank of mum and dad is the best bank of all! I’ve borrowed for overseas exchanges, trips, sorting out bond etc – all of which have been paid back in varying time spans. We have a great relationship and never once have I felt it hanging over my head – I’ve had far more judgement when I’ve spent my own money on silly things. We’ll also be borrowing from both our parents when we buy our first home, and we’re ok with that.

In your hypothetical world however, what will make your wife sleep best, and will the stress of the loan ruin your sleep? I would suggest that as long as it’s accessible in your mother’s savings account there’s probably no need to transfer it to yours, and in the interim, I’m sure you have credit cards that could cover just about everything? And, if push truly, TRULY, came to shove, the investment/retirement dollars could actually be reallocated.

I borrowed from my mom for my first car (22 years old), and from my mom and in-laws for our first house (26 years old). Repaid both quickly but wouldn’t do it again as an older adult (now I’m 48). Sounds like you don’t need the loan, so if worried about emergency fund, pay yourself the $900 per month until replenished. If some surprise pops up along the way, I assume your parents will still be willing, especially if there is a real need.

Pretending that this is *you*…. I say, take the interest-free loan from the bank of Mom.

Here’s why:
It’ll make your Mom happy to help you (I hear it makes them feel needed and useful… it’s like you’re doing HER a favor!).
Since you’re so good with your money, we all know you’ll be good for the pay-back.
You’ll have that financial security if (when?) something happens. Worrying about a safety net can be detrimental to your well-being.
You’ll be able to max out your retirement contributions as you’ve done in the past (and we all know the sooner you get money in those accounts, the bigger they can grow over time).

Finally…
Happy wife, happy life.

I know you’ll make the best choice, because it’ll be your choice and you’re SMART.

It all depends on the relationship. I have both borrowed from my parents and turned them down. Borrowed to help a cash flow problem with my first house…wanted to make a 20% down payment to get rid of PMI and needed a few thousand more…but less than 10K…I was cool with that and so were they. Paid them back in three months….After a few years, the offered us $90,000 to pay off out bank loan and then just pay them the same interested…which was more than they were currently making with there money sitting in the back. It would have actually been great for them and really made no differece as far as cost go for us….but it was too much…..Got a good relationship and under 10K or so?…go for it….once the numbers start to get BIG it is a whole nother story. Take half the money, put your wife at ease and make mama happy. Then just throw your extra $$$ at it till it’s paid back…..and then pray that Frankencaddy cooperates.

I would not feel comfortable borrowing from my parents especially because it’ll most likely mean they have to put their retirement in the back burner to help me first (my parents had a late start saving up for retirement when we immigrated to Canada).

I want to be self-sufficient and be the one taking care of my parents moving forward.

Unless you actually need the cash flow, why not just decline the loan on the assumption that in an emergency you can quickly and easily access that cash? Best of both worlds. No debt, but padding by proxy if needed.

Nope, I wouldn’t if I were in “his” shoes. If the son were to REALLY get in a pickle, it sounds like he could always ask his parents for help. Then and only then–when it is absolutely necessary–would I accept. But of course he should ask his wife what he should do–she should have some say in this. ;)

I did and it was for much less of an amount I think emotions are always tied in with money and I say clean up your own mess and learn from it You are NOT in dire straights and I understand for your thought process; myself loving your blog as much as I do!!!! But I gotta go with put the big boy pants on! SORRY Not probably what you wanted to hear

Back there I had an emergency that I need $1200 money for it. It never comes up in my mind to consider getting a loan to my parents. Instead, I apply for a personal loan online which I approved easily and got the money one day after my application. The problem is that I didn’t notice that I’m paying a high-interest loan. It’s too late to know that I acquire a loan from a payday loan industry.

Reading the blogs, makes me realize that I did a big mistake back there. But one thing I learned about that “always have an emergency fund.”

You could ask them whether they can keep up the offer during the next few months. You won’t borrow the money unless there’s a financial emergency that requires you to do so. Until that time, it’s only an offer and thus no real loan and no interest payments needed.

I think borrowing from family is a bad idea. You and your wife seem to be smart people. So why don’t you get your hustle on and choose option “C”. (Make up the difference with extra income.) While your wife is looking for work, she can hustle a little on the side and you could step up your game, too.

I have borrowed money from my Dad in the past so that I could have an interest free loan from him. But I hated it. I paid the money back as soon as I could. I couldn’t stand owing anyone any money.

But in this situation… I really want to say take it because it is interest free. Yet, if you would then feel like I do…and have it eat at you the whole time, then don’t.

Or you can give it a few months and see if you’re hurting…and then take the loan only if you really need it. Interest free kinds are the best kinds. Or if you’re more willing to have a down year than the guilt of owning money…I think your gut will tell you what’s best.

Perhaps only borrow the money if it is needed? That way you aren’t in debt unless the emergency comes it. It’s lovely to have the Bank of Mom & Dad as a backstop (especially a low or no-interest one…granted, my Dad would charge a bit of interest). It certainly frees you up to take more risks (like paying off a mortgage early)!

If my bank said “We know you’ll have $X coming in every month for the next X months. How about we give you all that money now and you send it back in monthly installments? No strings attached” I may say yes and invest that money.

If my parents made the same suggestion I’d probably thank them for the nice offer and then decline.

I think one could reframe the question…
Do you (hypothetical of course} want to take an action that you are not comfortable with – going into debt- in order to enable another person, your wife, to feel more comfortable ?
If going into debt-to whomever- makes you feel untrue to yourself, feelings of resentment could leak out into your relationship and be very damaging.
Money itself is, as usual, only the surface issue.

It takes a lot for me to be bent out of shape one way or the other – especially with money – so taking the loan to help my wife out or not would leave our relationship just fine… In fact, I kinda want to just take it to make her feel better and happy! I’m not super against debt when the money’s there to be repaid at any time. Only when it’s being taken out for nonsense and the whole financial picture is out of whack.

If the hypothetical parents are willing to loan you $14,000 now have only receive $900 per month until PIF then they clearly have no use for the money during that 15 month period. What would be wrong with not taking it now and then if a major emergency were to arise that would fully deplete your savings asking them for the money at that point? Essentially, you would be looking at the $14,000 loan as a HELOC that could be tapped if needed.

Remember, personal finance is…personal. I think I read that around here someplace. That means this is obviously your decision. But, if you really want opinions, I would NOT take the loan and throw that $900/month into savings. That means you’ll be back to a comfortable level in only 15 months. In the meantime, you know they have the money to loan you if something huge does happen.

Hmm, I would only use the loan for emergency purposes. I’ve been there, I had to finance an entire condo last year and I was short a tiny bit of money so I had to borrow it from family. I literally wiped my account clean, the good thing is that I have the means to repay the loan quickly to family, in six months timeframe. What I’m trying to get at is use the money to do what you need to do and still be able to sleep at night. The parents money is like a life line, only used when needed, it’s your security blanket and when used, you are committed to paying back super fast, faster than your parents expect you too.

This seems like more of an emotional question than a finance question. Especially since it seems like the money would still be there for a loan in event of a true emergency.

I borrowed money from my parents for things like car repairs in grad school, but they forgave the loan when I had good job.

People in my family have taken loans from each other for things like home buying. It’s mostly worked out fine. But it does require letting people in on financial details, which I haven’t wanted to do. I probably could have bought a condo earlier if I had, but then I bought on the right side of the DC real estate bubble, so that worked out for me.

As someone who is currently paying back a Parent PLUS loan, I’d say DON’T DO IT! As someone who lent my younger sister in college almost $1K, I’d say DON’T DO IT! There you have both sides of the coin- now hear me out.

I don’t know anything about your parents finances, but being that they can drop $14K without hesitation means something. Imagine some emergency comes up on their end, or they want to use that money. Yes, they voluntarily and willingly offered it up, but that doesn’t take that relational tension away. PLUS loans are different, I am aware. But if there’s tension with a loan they didn’t drop any cash for, imagine what it would be like had they drained their savings by $10K.

Now onto my sister’s situation… I willingly lent about $1K to her for school/food/rent. The typical college kid stuff. I know you,er, this rando and my sister are very different financially (and probably in all areas of life), but there’s a tension there too. She hasn’t been able to pay me and my wife back, but that could be a nice weekend getaway that we won’t get. In my heart, I’ve forgiven the loan, but it still pops into my mind every once in a while.

In my much less unprofessional opinion, I’d take the $900/month you would be paying back the loan and put that into your emergency savings. Yes, slower, but that’s all your money and it takes away that tension that neither party may foresee right now.

Easy, you don’t need the loan, you and your wife need to know someone has your back in the event of an emergency over the 15 months it will take you to save up the $14K you dropped. Don’t take the loan, instead pay yourself back, and ask your mom to agree to spot you up to $14K between now and 15 months from now should an emergency arise during that time. Once your back to where you were before spending the $14K everything will be back to square one and both your money and your pride will be spilling over again.

Don’t do it. You won’t be tight forever. Thank your mother very much, and ask her to hang onto the money just in case of a giant emergency. You may never need to bother with it, and your wife can rest easy knowing that there is help with just one short interest free phone call.

That’s a generous hypothetical offer from your parents. I agree with the others who warn about the risks of being in debt with your family members. It can lead to a lot of bad blood. But if the money is really just for an emergency, and this hypothetical mother has the money at the ready, what’s the point of having it in your bank account versus hers? If a true emergency comes up, you can take the money and repay it at 0% after actually needing it. But no emergency, no loan. (This is something like an option contract, or right of first refusal.) Unless for some reason you don’t trust your mother to have that money handy when you need it, and you absolutely must have a big cash cushion, I’d avoid it. (Also, if you are maxing out an HSA every year and you don’t own a home, what exactly is the giant potential emergency looming over your head that could hit you that would cost so much?)

If I needed a loan, there’s no better institution to borrow from than the parents! I would ensure I offer them the highest interest rate possible. They’d earn money and help me and get their money back. Better than investing in some nefarious or nebulous institution where you have no relationship!

I borrowed about a thousand bucks to get me through the last semester of college, and paid it back with my first big boy paycheck a few months later. This is tough. I say I’d only tap it IF an emergency came up and I needed it. But that’s just me, so it doesn’t matter :)

Dude! I haven’t read a single comment yet, but you do not need a family loan right now. IF your kid gets super sick or IF you face a layoff or crazy emergency, then it is fabulous to know you have parents who will loan you money (heck they sound like they type to outright GIVE you money in a true pinch). But borrowing $14K just to pad your reserves is crazy-talk.

First of all, you don’t need it. You’d literally just be saving it “just in case.

Second of all, having that cushion psychologically discourages you from saving. It takes away the “holy s**t I only have $3K in savings, we’d better not spend a freakin’ DIME that we don’t have to for awhile!” feeling which is very normal and rational and will help you rebuild your reserves quickly.

I have borrowed money from my mother. I borrowed from her instead of a bank to buy 2 rental properties, and she has a promissory note and deed and earns a market rate of return (I in turn got 100% financing and zero underwriting hassle). Borrowing from family is great if it’s a win-win or if you are in a true dire circumstance, but in this “hypothetical” case I just can’t see any point to it.

Don’t do it. Instead get a line of credit on your Vanguard brokerage.
Stash the $900/mo and know that in the slim chance of the $14k emergency coming up you could easily get the cash from the brokerage.
Probably not the fiscally best, but honestly, ~7% on $14k won’t kill your financial position and it will keep you from being indebted to your parents and continue your independence.

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I, J. Money, only claim the thoughts from my head. I am not a banker, CPA, money manager or anything else of that sort. Please seek a professional for any "real" advice. More info: privacy & disclosure page